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by • September 20, 2010

On September 17th, Orange County Employees Association General Manager Nick Berardino responded to a September 10th OC Register Watchdog report regarding retiree medical costs in the following reader rebuttal.

Rebuttal (Nick Berardino): O.C. pension costs

Five years ago, Supervisor Bill Campbell and the Orange County Employees Association recognized two things: the importance of providing quality health care coverage for retired county employees and the rising cost of doing so.

So, together, we addressed these issues head-on. Through the collective bargaining process, OCEA and the county arrived at an agreement that reduced the county’s unfunded liability for retiree medical benefits by $815 million while continuing to ensure our employees would receive adequate care in their most vulnerable years.

But if you read the Sept. 12 Orange County Register, you’d never know that a union played any role in reforming retirement medical costs here. Instead, a story about the costs of retiree medical plans (“O.C. agencies face down $1 billion pension costs“) appears to be more concerned with inducing sticker shock than stimulating a thoughtful discussion about solutions to the nationwide problem of caring for our elderly.

The story quotes so-called experts who blame public-employee unions for having the audacity to ensure workers will be able to pay for medicine and doctor’s office visits as they age. And it makes examples of government executives and elected officials who receive health care benefits in addition to six-figure pension payments.

We agree with the Register and applaud the paper’s outrage toward executives and elected officials who collect multiple pensions, refuse to give up their car allowances and other perks and who don’t pay their fair share â€“ or any share â€“ toward their retirement costs.

But it’s time to draw a distinction between the elite executive managers and the rank-and-file employees who pay for their retirement benefits, who collect a modest average annual pension of $29,000, and who endure furloughs and pay freezes when times are tough. Unlike their private sector counterparts and elected leaders, most of these workers are not eligible for Social Security benefits when they retire.

Providing medical benefits and retirement security to public employees is the responsible thing to do, both morally and fiscally. In fact, the private sector corporations making millions of dollars in profits should step up to ensure their employees have access to quality health care during retirement; failing to do so amounts to the biggest form of corporate welfare in America today.

See, when people lack adequate medical coverage, they often end up in the emergency room. And when they can’t pay, taxpayers pick up the slack.

The more we allow finger pointing and hyperbole to obscure the very serious issue of providing medical coverage to elderly Americans, the closer we come to creating a vast new elder underclass that’s dependent on taxpayer assistance to survive. And nobody has bothered to estimate that unfunded liability.

2) The ability of the private sector to help fund the generous public sector benefits – has been greatly compromised by the export of private sector jobs to the 3rd world & the subsequent re-distribution of wealth from the middle class (the taxpayers) to the affluent (who have lobbying power for tax loopholes).

The USA middle-class (taxpayers) was far stronger when USA unionized labor – recognized the value of supporting other USA unionized labor – and did so.

Appealing to individual greed – is a proven propaganda tactic to divide & conquer. Nearly everyone in the middle-class is greatly at risk of a reduced standard of living – as the rich get richer – & everyone else . . . .

“We can hang together – or we will hang individually.”
paraphrasing Ben Franklin

The fundamental problem is that city, county, and state governments donâ€™t understand the difference between an economic bubble and a fundamentally sound economy. During economic bubbles, (when revenues are higher), public employee unions demand and usually receive greater benefits for their members from governments in the form of increased retiree health coverage and pension benefits, and/or earlier retirement ages, and/or a reduced contribution from their members.
â€œPension & Retirement Benefits: Defusing The Budgetary Time Bombsâ€http://www.citiesonahill.org/pdf/coh_pension.pdf

The delusional thinking of pension fund managers has them believing that they can earn an 8% return on the pension fundâ€™s investments in a collapsing economy. In the fall of 2008 CalPERS, the California Public Employee Retirement System reported a $70 billion loss, which was over Â¼ of the fundâ€™s value. The one forth loss was due to derivative gambling.

The Discount Rate
If for example you $10,000 in ten years from today, and your savings account offered a 3% interest rate, then you would only have to set aside $7,441 today.
The Delusion
Public pension funds are allowed to discount their long-term liabilities based on their targeted annual rate of return on their assets, which for most public funds is pegged at an optimistic 8 percent by the Government Accounting Standards Board (GASB).
The Reality
Pension fund losses due to speculation in the now collapsed housing bubble and the gambling with derivatives losses result in pension funds being dangerously underfunded. The real world losses are compounded when pension fund managers are allow to discount the fundâ€™s liabilities based on the fundâ€™s targeted rate of return on investments, (which is often a negative return on investments).